The Income Tax Appellate Tribunal (ITAT), Bangalore Bench held that Acer India can not be fastened with liability to Tax Deducted at Source (TDS) retrospectively in respect of payments made for purchase of licensed software.
The assessee company, Acer India Pvt. Ltd. is engaged in the business of manufacture and trading of computer systems and peripherals. It also provides marketing support services for Acer brand products. The assessee has purchased software from non-residents and it did not deduct TDS from the payments made towards the said purchases.
Hence the assessing officer has treated the assessee as assessee in default and initiated proceedings under section 201(1) of the Act.
In this regard, the AO has placed his reliance on the decision rendered by jurisdictional Karnataka High Court in the case of Samsung Electronics Co Ltd , wherein it was held that the payment made for purchase of license to use a software is “royalty” income in the hands of non-resident.
Accordingly, the AO held that the assessee should have deducted tax at source under section 195 of the Act from the payments made to the non-residents towards consideration for purchase of license to use software. Accordingly the AO raised demand under section 201(1) and also charged interest under section 201(1A) of the Act in all the four years under consideration. The CIT(A) also confirmed the orders passed by the AO.
The issue raised in this case pertains to decision of CIT(A) in confirming the demand raised under section 201(1) of the Income-tax Act,1961 and the interest charged under section 201(1A) of the Act treating the assessee as assessee in default for not deducting tax at source under section 195 of the Act from the payment made for purchase of licensed software.
The tribunal noted that the assessee was under bonafide belief that there was no requirement to deduct tax at source from the payments made for purchase of software, since there were certain decisions holding there.
The tribunal headed by the Vice President N.V. Vasudevan held that the assessee cannot be fastened with the liability to deduct tax at source retrospectively and accordingly, and set aside the order passed by the CIT(A) on this issue and directed the AO to delete the impugned addition.
“We hold that the assessee cannot be treated as an assessee in default in respect of payments made for purchase of licensed software prior to 15.10.2011, being the date of pronouncement of the decision in the case of Samsung Electronics Co. Ltd (supra). Accordingly, the demand raised in the hands of the assessee u/s 201(1) and 201(1A) for assessment years 2009-10 to 2011-12 could not be sustained and the demands raised in respect of payments made prior to 15.10.2011 in assessment year 2012-13 could also not be sustained,” the ITAT said.
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